Taking a ride, back in 2015, Rohit Garg was shocked to hear that an autorickshaw driver routinely borrows amount as small as Rs 1,000 for petrol from his local lender at a hefty 10 per cent interest per diem.

Upon market research and discussions with various financial institutions and underserved borrowers, Garg got an insight that the formal credit access is severely restricted in India.

He went on to co-found SmartCoin in 2016 with Vinay Kumar Singh, Amit Chandel and Jayant Upadhyay to serve the underserved. The Bengaluru-based company, which provides short-term credit to the vast underserved middle and lower-income segments, has recently raised $2 million in pre-Series A funding from a top Chinese VC fund and Accion Venture Lab.

Unicorn India Ventures, which is an existing investor in the company, also participated in the round, along with ISME ACE, a leading fintech accelerator.

“SmartCoin illustrates how innovative lenders are leveraging data, mobile access, and India’s digital infrastructure to extend loan access for the financially underserved,” says Michael Schlein, president and CEO of Accion.

Product concept

SmartCoin is a mobile-based lending platform that connects borrowers and lenders. The company’s platform assesses the risk profile of a prospective borrower in real time using data science and machine learning algorithms. Its proprietary credit underwriting engine aggregates data points on a customer’s smartphone, including financial transactions, device usage and app behaviour, to build a customised credit score.

“A customer is instantly offered personalised loan products on the basis of his risk and capacity, and the money is transferred digitally to their bank account.The process is digital, automated and paperless, allowing us to provide instant credit to our customers," says Garg.

Prior to using SmartCoin’s platform, its customers were dependent on their personal networks — friends and relatives — or informal lenders for their small-ticket loan requirements.

Borrowing from friends and families involves embarrassment and social stigma, while loan sharks charge exorbitant rates.

Opportunity

The company sees opportunities in over 200 million people, who according to it, are largely underserved in India. There is an unmet demand gap estimated over $10 billion in lending space. While other fintech companies have emerged in the short-term lending space with a focus on the top tier segment, SmartCoin feels that it is uniquely placed in serving the mass market.

Its target customers broadly fall into three categories — the millennials who are in the early part of their career, emerging aspirational class comprising people working in smaller firms and unorganised sectors and micro-entrepreneurs who run small businesses and shops. The fintech start-up has tied up with non-banking financial companies (NBFCs) and banks to advance loans.

Revenue model

The company earns a fee commission, as revenue, from the lenders for each financial transaction.

Around 10,000 loans per month are disbursed through SmartCoin platform, ranging from Rs 1000 to Rs 50,000 with an interest rate which varies between 24 to 36 per cent per annum.

On break-even, the co-founder says, “Our focus so far had been on growing the customer base and reaching a product market fit.”

"We are on the path to break-even on an operational basis later this year, and at an overall level in 2019," he adds. Last year, the company had raised an undisclosed amount as the seed fund. The round which was led by Unicorn India Ventures.

Road ahead

SmartCoin has more than 100,000 users on its platform and is targeting 800,000 users by the end of the year. It also aims to disburse 50000 loans in a month in the next three to six months.

Challenges

“One of the challenges would be to make sure that we are able to maintain strong risk management as we try to balance our goals of enabling credit access for a wider population and building a sustainable business. That would require us to invest and innovate constantly on the tech front to refine our underwriting platform," says Garg, who is also the chief executive officer of SmartCoin.

The second major challenge for the company would be to control customer acquisition costs while scaling up.

Focusing on excellent customer service and retention would help lower the costs and grow in an organic manner, the co-founder feels.

Small consumer loans are largely an underserved need. To capture a significant value out of this opportunity with high gross margin, a self-serve platform is needed with access to rich data. In this regard, SmartCoin has created an intuitive simple app and is solving the right problems. However, they are testing quite a few hypotheses across loan origination, credit evaluation using alternate data and retention. This has left some room to improve in delivering the right value proposition for users with evolved needs.

I believe they could benefit from a tighter segmentation and delivering value for that segment, and not spread too thin in the initial days.